QuickTake:

Area school districts were forced to contribute significantly more for employee pensions this year than expected. As the Oregon Journalism Project reports, the state treasury continues to invest pension funds in underperforming private equity assets.

Rhododendrons frame Eugene School District 4J’s logo at the district building May 19, 2025. Area school districts, including 4J, are paying millions more in pension costs this year because state investments performed worse than expected. Credit: Lilly St. Angelo / Lookout Eugene-Springfield

School districts in Eugene and Springfield will pay millions more in pension contributions this year than they did last year, adding to their already strained budgets.

Pension cost increases for Oregon’s Public Employee Retirement System, commonly known as PERS, are affecting districts statewide. The gaps that districts are forced to cover are in large part due to a decline in the rate of return on the state’s pension fund investments in the past few years.

According to a recent investigation from the Oregon Journalism Project, the state treasury’s questionable investment decisions are forcing school districts to cover $670 million in additional pension contributions statewide over the next two years. The money could have paid for the salaries of 6,700 beginning teachers.

The increased PERS costs factored into significant cuts in the 2025-26 budgets of Eugene School District 4J, Springfield Public Schools and Bethel School District. These cuts will show up in the fall with reduced staffing, resources and student services.

PERS basics

School districts pay into their employee pensions every year as a part of payroll costs. 

This money, in addition to employee contribution money, is sent to the Oregon State Treasury, which invests the funds in order to pay for all state employees’ retirement benefits.

But if the state’s investments do not earn the profits the state is expecting, to help cover pension costs, school districts must make up the difference. State legislators regularly have to allocate more to the State School Fund for PERS costs in order to give school districts the funding they need to cover pensions.

Another complication in the Oregon pension system is the generous pensions Oregon had for employees hired before 2003. The policy requires employers to make significantly higher contributions for employees hired before 2003 than those hired after. These retirement payments will put a strain on the PERS system until about 2043, according to reporting from Oregon Capital Chronicle.

What local districts are seeing

The state’s low returns on teacher pension investments is costing 4J and Springfield the most.

Both 4J and Springfield Public Schools have budgeted for a $6 million increase in PERS contributions compared to last year. Bethel School District has budgeted for an increase of about $1.2 million. 

The amount a district budgets for PERS contributions and the amount it spends can vary widely. In 4J, for example, the district budgeted to spend $47 million in PERS contributions last year, but spent only $41.3 million. Therefore, the effects on districts’ bottom lines won’t be fully known until the end of this fiscal year.

Springfield and 4J are feeling the gap more than Bethel because both districts have pension bonds, also known as “side accounts,” which are soon coming to an end.

The two districts, much like many districts statewide, issued bonds in the early 2000s to help pay for pension costs. The proceeds of these bond sales went into a fund invested by the state treasury that, much like the broader PERS investment fund, has recently underperformed.

That, plus a recent explosion in payroll growth after districts hired additional staff with COVID relief dollars, meant bonds have been drawn down significantly faster than expected.

Carol Samuels, managing director of finance at investment banking firm Piper Sandler, spoke to the Springfield Budget Committee in a Jan. 9 meeting about the district’s side account. 

She said the cumulative rate of returns for the state’s overall pension investments was supposed to be 14% for 2022 and 2023. Instead, it was 4%.

“On an $80 billion portfolio, losing 10% is massive,” Samuels said.

She also pointed out that the state factors in an overall payroll growth rate of about 10.8% every two years and statewide payrolls grew more than 20% in 2022-23. This also caused accounts that are coming to an end to be drawn down faster than projected.

Oregon legislators did pass Senate Bill 849 in June to give school districts some funds to cover this year’s significant PERS cost increases. This will save districts $168 million statewide.